China, PH work to tap South China Sea’s vast oil deposits

China needs fuel to grow the world’s second-largest economy by 6.5% this year as established this week at annual legislative sessions. The Philippines just entered year two of a half-decade infrastructure construction boom, and that takes a bit of gas too.

No wonder the two sides are taking their new friendship to another new level by working toward joint exploration for oil and natural gas under the South China Sea between them despite a sovereignty dispute. From mid-February, officials have been deliberating how their oil exploration firms can work together on two tracts off the Philippine archipelago’s west coasts. One is held by Manila alone and another lies in contested waters, Forbes magazine reported.

Assuming that the project takes off — some Filipinos worry about legality and whether the militarily mightier China might take a lopsided share of the fuel – the two sides stand to discover a hefty amount of the oil and gas for which they thirst.

Estimates favor a discovery

The U.S. Energy Information Agency estimates that 11 billion barrels’ worth of oil lies under the whole South China Sea along with 190 trillion cubic feet of natural gas. Most of that is located near coastlines rather than in the disputed open sea. The sea spans 3.5 million square kilometers all told. About one-fifth of untapped deposits lie under the disputed areas, according to this Oilprice.com report.

Governments usually avoid the contested tracts to head of conflict that could entangle oil interests, said Song Seng Wun, an economist in the private banking unit of CIMB in Singapore.

Tracts southwest of the Philippines hold from 1 million to 2.5 billion barrels of oil or its equivalent, according to U.S. EIA maps.

More on Forbes: How China Could Gradually Assume Control Of Scarborough Shoal In The South China Sea

One site for proposed joint development is Reed Bank in the Spratly Island chain where both sides claim sovereignty along with Brunei, Malaysia and Vietnam.

The Philippine government had already been eyeing Reed Bank as a replacement for natural gas fields at Philippine-controlled undersea site called Malampaya as gas there is expected to run out by 2024, per this domestic media report. Malampaya supplies about 20% of the power supply. PXP Energy Corp. of the Philippines has sights on Reed Bank now.

Philippine officials said separately last year they were ready to finalize a deal with China’s CNOOC for exploration in a non-disputed, Manila-held tract near Malampaya.

Eagerness on the part of explorers further indicates high odds of a discovery. Searches without finding actual oil or gas just lose money, says Oh Ei Sun, international studies instructor at Singapore Nanyang University.

“We’re not talking about just punching a hole in the seabed,” Oh says. “It costs sometimes billions of dollars to do so. You need to have some kind of scientific and technological background research to be confident that you might strike something before you go ahead.”

Mutual thirst

The Philippines, a country known now for electrical brown-outs and a consumer of about 400,000 barrels per day, will need more fuel to build roads, railways and new airports as part of President Rodrigo Duterte’s aggressive infrastructure modernization drive. The Philippines is “pursuing it aggressively because we need it,” Foreign Affairs Secretary Peter Cayetano told Manila-based reporters in February.

China consumes about 11 million barrels per day, per this report. The economy worth more than $12 trillion at the end of last year burns fuel for its manufacturing-based economy, and this week Premier Li Keqiang pledged Monday to open factory investment further to foreign capital.

Despite efforts in China over the past seven years to foster a cleaner service sector, the country still churns out cars, shoes, toys, electronics and steel.

Sharing discoveries

China and the Philippines would “compromise” over any disputed tracts opened for exploration and they “should contract as sovereign equals and observe the principle of equality under international law,” Philippine presidential spokesman Harry Roque said on March 5.

CNOOC, China’s state-run offshore oil driller, has joint exploration agreements now with Vietnam to take fuel out of the Gulf of Tonkin between them. The Philippine government could look to the Vietnamese-Chinese deal as a model for its own with China, Roque said.

Asian countries have generally learned how to work around sovereignty disputes and find resources, says Alan Chong, associate professor at the S. Rajaratnam School of International Studies in Singapore. “The neglected story is that everyone has a finger in everyone else’s pie,” he says.

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Philippine Resources Journal is your best source of information and insights on the various resource industries of the Philippines. We are the magazine that the key people in mining, petroleum, renewable energy and other resource industries rely upon for news and feature coverage of their businesses. Read more…